BOEM Announces Updated Financial Assurance and Risk Management Requirements for Offshore Leases

The U.S. Bureau of Ocean Energy Management notified companies holding oil and gas leases in federal waters that BOEM is updating financial assurance and risk management requirements for decommissioning and removing a company’s offshore production facilities.

BOEM’s new Notice to Lessees and Operators details new procedures to determine a lessee’s ability to carry out its lease obligations — primarily the decommissioning of Outer Continental Shelf facilities — and whether to require lessees to furnish additional financial assurance.

All OCS leases require that when decommissioning, the company must remove all facilities and restore the site to its pre-lease state. Due in part to the industry’s move into deepwater areas in the Gulf of Mexico, decommissioning costs have risen significantly. Moreover, as existing infrastructure ages, larger companies are transferring older facilities to smaller or less experienced companies. Current estimated routine decommissioning liabilities in the OCS are approximately $40 billion.

The NTL replaces NTL No. 2008-N07 and provides updated procedures for requiring additional financial security for oil and gas or sulphur leases. The revised NTL will provide updated criteria for determining a lessee’s ability to self-insure its OCS liabilities based on the lessee’s financial capacity and financial strength. It also provides new methods and additional flexibility for lessees to meet their additional financial security requirements through a tailored plan. The guidance and clarification will apply to all BOEM regions and planning areas. In addition to lease holders, the NTL also applies to right of use and easement holders.

More information about the NTL can be found here.

The NTL is posted here.

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